This last week I spent three days training the EA team in Burnaby, Canada, a suburb of Vancouver. I stayed right downtown on the water. If you have not visited Vancouver, I highly recommend it. It’s been a couple of years since I have been there. I forgot what I knew then and now remember. It is my favorite city in North America or second only to New York and Manhattan. Those two cities are hard to compare because they are so different. Manhattan is non-stop action and things to do. Vancouver is a city in the mountains and on the ocean – its clean safe and has great food. No major North American city is as beautiful as Vancouver.
The classes were great this time around. The students were from several parts of the business including the IT support group, but the biggest group was the FIFA game group. FIFA is EA’s most profitable game and these teams in Burnaby do a great job keeping it current. In the class we play a financial game development simulation called Duality. This simulation was a big hit with the FIFA folks. The business is moving more digital and it was very informative to see how margins and overall profits improve as the teams work to transition into more of the digital world with this hugely successful packaged game.
In the last five years EA has made a concerted effort to move into more of a digital gaming company. A key number they have been driving is gross profit margin (gross profit divided by net revenue). In 2009, when the financial crisis hit, EA was losing money. Their digital business represented about 10% of their business. At that time I was just starting my training relationship with them and their gross profit margin percentage was almost 50%. That year EA lost $98 million on a non-GAAP basis. Today EA provided a forecast or guidance to Wall Street for the fiscal year 2015 which will close at the end of March of a non-GAAP gross profit margin percentage of 70%. They also are projecting a non-GAAP profit of with $752 million. The stock has increased more than 4 fold over that period into the high $50’s range.
It is amazing to see what a difference increasing gross profit does for a business. Watching and increasing gross profits in a business can really drive a business’ value. Wall Street and other investors really focus on gross profit trends in a business.
It was a great three days for finance in Vancouver. I had a tremendous time with my EA friends.